Dell Buys Compellent for $960 Million to Expand Storage Lineup

Dell announced on Dec. 13 that it had reached an agreement to pay $960 million for Compellent to add virtualized data storage and thin provisioning to its line of SAN products.

Foiled in an earlier attempted to expand its virtualized storage product line, Dell announced Dec. 13 that it had acquired Compellent to broaden its enterprise-class storage portfolio and expand its data-center capabilities.

Compellent specializes in virtualized storage products with automated data-management features, including tiering and thin provisioning. Its main product, Compellent Storage Center SAN, is a combination of data-storage hardware and storage management software. With the Compellent merger, Dell can focus on data management, thin provisioning, and storage for cloud-computing environments, said Brad Anderson, senior vice-president of the enterprise product group at Dell.

With the purchase price finalized at $27.75 a share, the all-cash deal is valued at about $960 million. The buyout will actually cost $820 million after Compellent's current cash holdings are included in the deal.

It's no secret that Dell wants to expand its data-center business to offer customers a combination of servers, networking and storage, instead of relying on the commoditized PC business. In August 2010, Dell sought to acquire 3Par, another maker of virtualized data-storage products, but lost a prolonged bidding war to HP.

The company has several storage offerings, which have grown "organically" through enterprise investments and "inorganically," such as by acquiring EqualLogic, said Anderson. Dell is "committed to the storage industry," he said.

While long expected, the deal raised a lot of questions about Dell's existing partnership with storage leader EMC. Dell resells EMC's storage lineup, including the mid-range Clariion line and high-end Symmetrix systems. First signed in 2001, the Dell-EMC partnership is good through 2013.

On a call with reporters, Anderson downplayed the potential impact, pointing out that there are "over 24,000 customers" using EMC products, and that Dell will continue to do the "right thing for customers." Anderson said Dell and EMC had been in discussions over the "past two days" and they remain "passionately committed to customers."

According to Anderson, Dell will "continue to sell EMC" for customers who are interested in that lineup. Dell's products are open, capable and affordable, and "one element of being open is choice," Anderson said.

When pressed further about whether the sales team will be talking about the EMC lineup at the expense of Compellent products, Anderson reiterated that Dell will do "the right thing for customers" followed by the "the right thing for shareholders."

The general perception is that Dell's relationship with EMC is not on strong footing, especially with Dell shopping for its own storage business. When Dell bid on 3Par in August, the partnership was "put at risk," and this Compellent merger "may be a defensive move" in light of a "souring relationship" with EMC, said Jeff Ready, CEO of Scale Computing.

"The EMC relationship may become even more strained," wrote Jeffrey Fidacaro, an analyst with Susquehanna International Group, in a research note. Compellent's SAN storage solution "competes directly with EMC's Clariion, particularly in the midrange," he wrote.

The latest merger in the data-storage industry came on the heels of Dell's and Compellent's joint announcement last week that they were in the midst of negotiations, at $27.50 a share.